Researchers Investigate Economic Impact of Climate Change on Farms

US - An interdisciplinary team from the University of Illinois recently investigated the effects of climate change on farmland values in the Southwestern United States.

“We chose to look at farmland values because they reflect the sum of future expected profits and account for adaptation. And that’s exactly what climate change is about: long-term change and adaptation,” explained U of I economist Sandy Dall’Erba.

Over the next 70 to 100 years, the climate is projected to change dramatically, with major impacts on a wide variety of economic sectors.

The team focused on a single climate region, the US Southwest, where climate changes are expected to make farming even more difficult than in other regions.

What’s new about the work is that the team used an economic model that allowed them to look across production systems, so they could evaluate farmland values for soybean producers and cattle ranchers alike. The model, known as the Ricardian approach, also allowed for adaptation on the part of the farmer.

“Farmers are smart; you can’t assume that in 100 years they’re going to still be farming corn like they are now,” Dall’Erba said. “Climate is changing, new practices and new technologies develop, so they may switch to another production system. The Ricardian approach assumes farmers will adapt.”

Taking multiple climate scenarios into account, the team found that irrigation, population density, and farm subsidies all increased farmland value, but subsidies had an effect in highland counties only. In addition, heat waves were found to hurt productivity.

Their results also indicated that land values in one location are influenced by irrigation and climate conditions in neighbouring locations due to water depletion, water run-off, and/or sudden floods that follow intense rainfall.

“Counties are open economies, so elements beyond their boundaries have an influence on them,” Dall’Erba said. “Overall, and based on the set of future climate scenarios accounted for in our work, it seems that highland counties will be more affected by climate change than lowland counties.”